Will PwC Continue To Ensure Integrity of Oscar Voting? You Get What You Pay For

“These two ritualistically dumpy men reassure us that, in spite of the vast rewards to be gained by irregularity, our interests as a people are being protected. There still may be a surprise winner; God and the Devil still exist.” David Mamet, thinking of the accountants who used to be introduced from the stage of the awards.

I got a tip over the holidays about PwC’s involvement in the Academy Awards ballot counting. An insider said it would be a shame if a serious glitch occurred with the new electronic voting software while Brad Oltmanns, PwC’s Global Board chairman, was still the man on the ground for the prestigious, eighty-plus years old, Oscar gig.

So I looked into it.

It seems that this may be the last year Brad, and fellow partner Rick Rosas, will be walking the red carpet. The Academy has finally caught up to the rest of the awards shows and implemented electronic voting for the nominations and the awards. The problem, as my tipster was alluding to, is that this PwC advisory engagement – unlike the lucrative foreclosure reviews – has not been without headaches.

What’s worse is that PwC may be charging little or no bucks for the extra work.

PricewaterhouseCoopers LLC, the global audit firm, is heavily invested in the success of the Academy Awards. PwC is well-known as the “accountants” to the Academy since 1935. But the service PwC is most famous for – safeguarding Academy members’ ballots for the awards and keeping results of that tally top secret – is one the firm provides, apparently, for next to nothing…The Academy of Motion Picture Arts and Sciences announced almost a year ago, January 25, 2012, that it had selected Everyone Counts, Inc. for its first foray into electronic voting for the awards. Unfortunately, for PwC and the Academy, the design and implementation of the new system have been fraught with issues, delays and complaints from the start. The results from the first phase of the voting under the new system, the award category nominations, have been questioned, according to the Washington Post.

The Washington Post reported that “several surprises and snubs in this year’s Oscar® race, perhaps more than usual, led some to wonder Thursday if the online voting system may have affected the nominations. Because of the highly secretive and somewhat complicated process in selecting Oscar nominees, it’s unclear what impact, if any, the addition of online voting had on this year’s field.”

A Twitter follower asked today whether this means staff who are still counting some paper ballots and working feverishly as “partners” with the Academy and Everyone Counts, Inc. to make sure counts are accurate will be suffering bad utilization as a result.

Understanding the difference between utilization and realization is a requirement for running the business of the Big Four. Click here for a primer.

Although the Academy of Motion Picture Arts and Sciences is a 501 (c) (3) organization, a not-for-profit, not a public company governed by the SEC, it’s a big complex organization. The 2010 tax return lists over $200 million in assets, more than $90 million revenues, and $18 million in grants. Heck, the Academy even reports bank accounts in Luxembourg and Barbados, investments in financial derivatives and has to include a footnote to its financial statements that addresses the organization’s liability for uncertain tax positions under FIN 48 (ASC 740).

In other words, PwC’s professional role as the auditor of the Academy’s financial statements and reviewer and signer of its tax return is a big deal to the Academy’s members, its grantees, and to the IRS. However, as my Forbes piece details, PwC is not charging much for its statutory audit and tax review services, let alone the rest of the work they do at awards time. PwC is probably doing even more right now to insure the new online voting software is implemented successfully. Loss of integrity in the Oscar voting process would have severe reputational and revenue impact on the Academy and clearly would hurt PwC given its long public association with the organization.

Back in November I attended a live PCAOB Standing Advisory Group Meeting in Washington DC and a related subject came up in the discussion. Many are concerned about the reemergence of active marketing of consulting services for audit clients and its effect on independence of the auditor. PCAOB Chairman Doty recently mentioned in a speech that his inspectors see instances of deliberate underpricing of audit services by some firms. That’s prohibited by the auditing standards.

Yet from our earliest days, inspectors have identified serious audit deficiencies of such a range that it is not possible to ascribe them to isolated technical weaknesses. These include instances where auditors did not approach some aspect of their audit work with the required independence, objectivity and professional skepticism.

We consistently find strong technical auditing skills at all of the largest firms and many smaller firms, in both new and long-term engagements. Yet we also find explicit policies directing partners to price audits for new clients lower than the cost of auditing for the express purpose of establishing a long-term relationship.

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Francine McKenna (@retheauditors) is the Transparency Reporter at MarketWatch.com, a Dow Jones publication, where her work is also featured frequently in the Wall Street Journal. McKenna had more than twenty-five years of experience in consulting and professional services including tenure at two Big 4 firms, both in the US and abroad before becoming a journalist. Look for her prior columns, "Accounting Watchdog" at Forbes.com and "Accountable" at American Banker. For more information, click "About" at the bottom of this page. For more information contact Francine McKenna, fmckenna@mckennapartners.com